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Thursday, 5 March 2015

This morning the Court of Justice of the European Union
(CJEU) issued its decisionin Case C-463/12 Copydan
Båndkopi, a reference for a preliminary ruling from Denmark, seeking
clarification on key questions relating to the so-called ‘private copying’
exception under Article 5(2)(b) of the Information Society Directive 2001/29.
[For those seeking
a high-level refresher on this copyright exception, see yesterday’s Katpost here]

In reaching its decision,the CJEU has certainly taken its
time: almost 9 months have passed since Advocate-General Villalón’s Opinion of
18 June [finally
now available in English here].It is a
lengthy decision (almost 100 paragraphs) covering a wide range of vexing issues
relating to the private copying exception, with the CJEU handing down eight
rulings in response to the six lengthy questions
referred to it [For
an overview of the CJEU preliminary reference procedure, see previous Katpost here].

Having had an initial read of the Rulings and the preceding explanatory
paragraphs, this Kat has sought in this post to summarise (and to some extent,
paraphrase the often inaccessible CJEU language) to draw out the key issues before
the CJEU and their responses. Copydan
is likely to give our readers plenty to chew on and is ripe for further
detailed analysis - but for now, here is a high-level overview of this
important decision.

Key factual background

Finland-based Nokia sold mobile phones to business customers
in Denmark, who resold them to both individuals and business customers.

Whilst all Nokia phones have an internal memory (i.e. the
storage device is non-detachable), certain models have an additional memory
card (i.e. which is detachable).

On these detachable memory cards, users could store data
(e.g. contact details, photographs) as well as files containing audiovisual
works (e.g. music, films which may have been downloaded from the web or
from DVDs, CDs, MP3 players etc).

In this regard, these memory cards are “multifunctional
media” with the capacity to be used for private copying (in relation to the
audiovisual files), as well as for uses unrelated to private copying (e.g. storing personal data).

Nokia disputed its liability to pay a private copying levy
to the Danish collecting society, Copydan Båndkopi, in relation to the
detachable memory cards that were imported into Denmark for use in its mobile
phones between 2004 and 2009.

As is now customary, the CJEU ‘re-organised’ the six referred
questions
and answered all of them (except one) in its eight Rulings, as summarised below:

Multifunctional media (Question 4 / Ruling 1)

Q: In relation
to multifunctional media (e.g. a memory card capable of being used for both
private copying and unrelated purposes), to what extent does its function
affect the requirement to pay fair compensation?

CJEU's response:

Article 5(2)(b) permits national legislation to require fair
compensation to be paid in principle where at least one of the functions of the
media enables the operator to use them for private copying purposes – even where
that is merely an ancillary function. [This is because, as indicated in Case C-467/08Padawan, final users are
deemed to take full advantage of all the functions provided by the medium – and
there is no requirement to show that private copies are actually made.]

The amount of fair compensation payable is liable to be
affected by:

whether its function to enable private copying is a main or
an ancillary one; [which presumably would be a question of fact for the
national court in each case] and

the relative importance of the medium’s capacity to make copies.

Where prejudice to the rights holder is “minimal” [on which, see
Ruling 4 below], the making available of such a function need not
give rise to an obligation to pay fair compensation.

Minimal or de
minimis harm (Question 3 / Ruling 4)

[As a quick reminder to readers: although one of the
conditions under the private copying exception is that rights holders receive
“fair compensation”, recital (35) of InfoSoc provides that “in circumstances where the prejudice to the
rightholder would be minimal, no obligation for payment may arise”.]

Q. At what point is
harm considered sufficiently minimal (or de
minimis) such that fair compensation is not required to be paid?

CJEU’s response:

Just as Member States have the discretion to decide whether
or not to adopt the private copying exception into their national law, they
also have the discretion to decide where the threshold lies below which
prejudice or harm might be classified as “minimal” for the purposes of recital
(35). [A classic
CJEU gloss over?]

However, Member States must apply the threshold in a manner
which is consistent with the principle of equal treatment. [i.e. comparable situations must not be treated
differently and different situations must not be treated in the same way unless
such treatment is objectively justified.]

[The concept of de minimis
harm is of particular significance to the UK, where the private copying
exception recently came into force via The Copyright and Rights in Performances
(Personal Copies for Private Use) Regulations 2014 (SI 2014/2361).

The UK government’s implementation of the private copying
exception is currently being challenged due to its failure to provide for a
private copying levy in the implementing regulations. In a judicial review
claim filed in late November last year, the claimants (BASCA, the Musicians’ Union and UK Music) claim that, in failing to make any
provision for compensation, the UK government acted contrary to EU law such
that the implementing regulations as a whole are ultra vires (i.e. invalid) and liable to be quashed.

It is a little disappointing in this Kat’s view that the CJEU
did not use this opportunity to provide more meaningful guidance on what
constitutes de minimis harm, over and
above highlighting the importance of the principle of equal treatment.]

Q. Is it permissible
for national legislation to distinguish between detachable and non-detachable
integrated media in determining the application of the levy system?

CJEU's response:

Yes – but only where in making that distinction, the
national legislation is consistent with the principle of equal treatment.

It is for the national court to decide whether the
detachable and non-detachable media in question are comparable. If they are
comparable, their different treatment must be objectively justified. Such
objective justification might arise, for instance, in respect of the
non-detachable integrated components where rights holders receive fair
compensation “in another form” [an example of which might be downloading music from lawful sources
such as iTunes onto your smartphone, where fair compensation is provided via
the licence fee].

[This ruling is likely to be of particular interest to the
smartphone industry (amongst others), where the recent design trend (e.g. iPhones
and Samsung’s Galaxy S6) appears to be towards integrated storage only]

Q. What effect, if
any, does the implementation of technological protection measures (TPMs) on
relevant media have on the requirement to pay fair compensation?

CJEU’s response:

Even where it is possible to implement TPMs on relevant
media to reduce the risk of unauthorised copying, this does not affect the
requirement to pay fair compensation in principle. [The CJEU followed its previous reasoning in
Case C-457/11VG Wort (see previous Katpost here) in reaching this conclusion]

However, Member States have the discretion to consider
whether such TPMs are being applied when calculating the actual level of compensation
owed to rights holders. [The underlying rationale was to encourage the rights holder
to make use of TPMs and “thereby voluntarily contribute to the proper
application of the private copying exception” ([72]) – although whether this is
practicable at a commercial level is an entirely separate matter...]

Q. Where the rights
holder gives their consent to the use of their work for private copying
purposes, what effect, if any, does this have on the requirement to pay fair
compensation?

CJEU’s response: Such
consent or authorisation has no bearing on whether fair compensation is owed [following its
approach inCase C-457/11VG Wort]

Knowledge of the end-user: individuals or business
customers? (Question 6 / Ruling 3)

[Essentially, when Nokia sold its memory cards to business
customers in Denmark, it did not know whether the ultimate users of those
memory cards would be individuals or business customers. The Danish levy system
provides an exemption from paying the levy where the memory cards were sold to
businesses customers who were registered with the organisation responsible for
collecting the levy (the “Exemption”)]

Q. Is it permissible
for national legislation to have a levy system which requires producers / importers
of memory cards to pay a levy in respect of memory cards sold to business
resellers where the producer / importer does not know whether the final
purchasers of those cards are individuals (who might use it for private copying
purposes) or business customers?

Is the answer to that
question affected by:

a) the existence of
the Exemption; or

b) the producer /
importer being able to obtain a reimbursement of that levy if the memory card
is used for business purposes (i.e. not for private copying) given that in
practice, only the end-user is able to apply to the levy organisation to obtain
a reimbursement?

CJEU's response:

It is permissible for national legislation to have such a
levy system in place (as explained in the question above) provided that:

it is justified by “practical difficulties” [e.g. in
identifying the final users of the memory card and requiring them to compensate
rights holders for the harm caused by private copying – see further Case C-521/11Amazon, in particular at [24],
[31]-[35] (see here)];

the producers / importers responsible for paying the levy are
exempted if they can establish that the memory card was provided to “persons
other than natural persons” (i.e. business customers) for purposes unrelated to
private copying;

that exemption should not be restricted solely to those
business customers who are registered with the organisation responsible for
administering the levy;

the system provides for a right to reimbursement of that
levy which is effective and does not make it excessively difficult to repay the
levy;

only the final purchaser of the memory card may obtain
reimbursement by submitting an appropriate application to that levy
organisation.

Copies via third party devices (Question 1(e); Ruling 7)

Q. Is it permissible
for fair compensation to be provided in relation to copies of works made by an
individual “by or with the aid of a device belonging to a third party”?

CJEU's response with somewhat
questionable analysis:

Article 5(2)(b) indicates that the private copying exception
is applicable to “reproductions on any medium”, but it does not contain any
reference to the legal nature of the connection (e.g. a right in property)
between the person making the copy and the device used by that person to do so.

The absence of any such reference indicates that “the EU legislature
did not consider [the legal relationship between the person making the private
copy and the device used to make that copy] to be relevant, in the light of the
objective which it pursued by its measure of partial harmonisation.”

“It follows that the question whether the device used by a
private individual to make copies for private use must belong to that person or
whether it may belong to a third party falls outside the scope of Article
5(2)(b)”

“In the light of the foregoing, the answer to question 1(e)
is that Directive 2001/29 does not preclude national legislation which provides
for fair compensation in respect of reproductions of protected works made by a
natural person by or with the aid of a device which belongs to a third party.”

Copies made from unlawful sources (Question 1(f) / Ruling
7)

Q. Is it permissible
for national legislation to provide for fair compensation in respect of
reproductions made using unlawful sources – i.e. where the work has been made
available to the public without authorisation?

CJEU’s response:

In order to strike a fair balance between the interests of
rights holders and users, a private copying levy system must distinguish
between copies made from lawful and unlawful sources.

In light of this, fair compensation is not required to be
paid in respect of reproductions made from unlawful sources, that is where
works are made available to the public with the rights holder’s consent. [This is not a
surprising outcome, given the CJEU’s previous approach in C-435/12
ACI Adam (see here and here).]

The Danish court had also asked the CJEU at Question 1(g) to
consider whether fair compensation should be provided in respect of “files
copied lawfully by some other means from, for example, the internet (from
lawful sources where no licence has been granted)”. In response, the CJEU appears to have run out of steam and decided
that the referring court had failed to provide sufficient factual or legal
material necessary to enable it to give a “useful answer” – and thus rejected
the question as inadmissible.

***

There is plenty of scope for more detailed analysis on today’s
judgment, but for now, this hopefully provides readers with an overview of the key
issues.

3 comments:

Anonymous
said...

I think you completely misunderstand Ruling 6 both on the facts and on the law. The issue there is what is the relevance of licensed copies in exercise of the exclusive right where a MS also has an exception for private copying in place. The Court is very clear -such a licence has no legal effect as the MS has removed the ability to license with the exception. The consequences go far beyond this case for most MS except arguably the UK which appears to be home and dry with its narrow exception and its broad exclusive right

So cloud storage, the virtual memory connected to your phone (but probably shared with your other devices) is an area of exception not harmonised at EU level . Ruling 7. But wait, where my phone and its memory is rented from the network, I wouldn't own that either. With a shift to the "sharing economy" of renting access and not ownership, that could become true of most storage.

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